Question 20

Due-on-sale clauses are intended to prohibit the assumption of the mortgage.

A due-on-sale clause prevents the assumption of a mortgage by allowing the lender to demand full repayment if the property is sold or transferred, thus protecting the lender’s interests.

A) subordination

Subordination clauses do not prohibit the assumption of a mortgage; instead, they allow a junior lien to take priority over a senior lien. This is unrelated to the assumption of mortgages and does not serve to protect the lender in the same way as a due-on-sale clause.

B) acceleration

Acceleration clauses allow the lender to require full repayment of the loan if certain conditions are met, such as default. While this can impact the loan's status, it does not specifically address the assumption of the mortgage in the context of property transfer.

C) amortization

Amortization refers to the process of paying off a loan over time through scheduled payments and does not relate to the assumption of a mortgage. This option does not prevent assumption nor does it serve a protective function for the lender regarding property transfer.

D) due-on-sale

Due-on-sale clauses are specifically designed to prevent the assumption of a mortgage by giving the lender the right to demand full repayment if the property is sold or transferred. This clause directly addresses the concern of mortgage assumption and safeguards the lender's interest.

Conclusion

The due-on-sale clause is definitive in prohibiting the assumption of a mortgage, ensuring that the lender retains control over who may take on the mortgage obligation. All other options fail to address this specific scenario, focusing instead on other aspects of mortgage management or rights without the same protective intent against assumption.